Nomi Prins is out with another teaser campaign, talking up the big investors who have poured money into her favorite “more efficient gas pump” — this is from the email I received:
“Morgan Stanley recently doubled down and increased their stake by 102%.
“They have $37 million invested in a single stock.
“Citadel has increased their stake by 172%… they’re in for $48 million.
“Again…
“All on a stock that’s less than $20 per share!
“… these banks are betting a combined quarter of a billion dollars on this one stock….”
So what is it? It’s a long pitch that eventually leads to… invest in EV charging stations, because the government is incentivizing electric vehicles and the recent infrastructure funding bill will pour a lot of money into building out the network of public chargers to make that feasible.
And that sounds familiar, no? Indeed, this is really just a repeat of Nomi Prins’ pitch for the “#1 Stock for America’s Great Distortion” — and we covered it back in May, it was just a slightly different pitch. The first ad was mostly about how the Fed has lost control and distorted the economy, and we were all doomed… but still, EV chargers are going to grow, but the primary bait to get people to sign up was the same, that special report called “The #1 Stock for America’s Great Distortion: 10x Gains on a Small Firm Disrupting a Critical American Industry.”
Is the stock still the same as the one she was pitching a few months ago? Indeed it is… she misstates it as having a $1 billion market cap for some reason, it’s actually around $5 billion right now, but she also continues to talk up their connections with car companies, including deals with Volvo and Ford… and their collaboration with Starbucks that has the potential to make stopping for a latte also your “recharge” point in the day. This is still ChargePoint Holdings (CHPT).
And the story hasn’t really changed dramatically since May, so I’ll just reiterate what I said when I covered the first version of this tease… what follows is mostly a repeat of that, with the numbers updated a bit:
ChargePoint just lapped its first year as a public company, they finalized their SPAC merger to go public right at the heart of SPAC-mania and EV-mania last year, on March 1, and were a market darling in early 2021 as they topped $45 for a little while before the merger was even completed, but the stock has been falling with all its “story stock” peers and now trades at about $15 (it was at $13 when Prins started teasing it in April or May).
It’s been an interesting year, they’ve already raised more capital and made a couple acquisitions, particularly in Europe, a more mature market where they were not the leader, and they’re also consuming cash as they extend their charging networks. The expectation is that they will come close to doubling their top-line revenue in each of the next couple years, but that they will be unlikely to reach breakeven for quite some time.
ChargePoint claims that 76% of the Fortune 50 are customers (they offer both fleet charging and premium charging subscriptions or installations for employees and customers to those corporations… as well as selling charging to individuals), it is one of the many stocks that has gotten the “could be a 10-bagger” treatment from the Motley Fool and others, and it has won a bunch of awards. What’s not to love?
Well, if you’re at all conservative, you might not love the financials. Electricity and charging are largely fungible, or expected to become so over time as the EV world gets a little more standardized, so there is certainly a race on to establish those standards and build brands, just as there has been over the past century in the gasoline business, and maybe it’s worth the investment that all of these companies are making to establish those beachheads… but if that’s working, it probably won’t be obvious in the financial statements for many years.
You can certainly go with the basic logic that electric vehicles are selling strongly and likely to take over more of the market, and that both companies and the government are focused on building out the EV charging infrastructure, and that just betting on the current leader is a reasonable choice — as a “story,” that sounds perfectly reasonable to me, and it may well work out if you’re patient enough to wait it out. And the company is so kind as to host a “why invest in ChargePoint” page on their website to sum up their early advantage (or a longer Investor Presentation, last updated in June, if you’d like more detail).
I will confess that I’m more interested in ChagePoint this year than I was last year — they have eclipsed some of their competitors in the public markets as some of the weaker performers saw their SPAC mergers fail or financings get more challenging, and I like that they’ve more aggressively expanded into Europe through acquisitions, since both EV charging in general and out-of-home charging are more important businesses in Europe than they are in the US today, given higher EV adoption rates. The combination of leading market share and more financial flexibility than most of their competitors is a good recipe for a potential longer-term win, though it’s far from a guarantee.
And, of course, the company is just plain cheaper than it was for most of last year — the valuation is still challenging at 18X sales, which is a lot for an unprofitable company (well, historically a lot — lots of companies traded at those kinds of valuations from 2019-2021, but such valuations were very rare before those go-go years), but it’s a lot more appealing than the 30-40X sales valuations we saw for ChargePoint in 2021.
The good news is that ChargePoint is improving — it’s a bit skewed by COVID, during which demand for out-of-home charging and commuting was obviously very depressed, and when the sales of their charging systems actually declined slightly, but over the two-year period from their 2020 to 2022 fiscal years (the 2022 fiscal year ended Jan. 31, 2022), they did grow their sales of charging systems by about 70% and their subscription revenue by about 85%, and at a slightly improved gross margin. The subscription revenue has a slightly higher profit margin than the hardware, at least potentially, so it’s good to see that increase as usage of the charging network grows — their business model depends pretty heavily on those subscription and service revenues being the primary profit growth engine over the long term (over a seven-year lifecycle for a charging station, their goal is that half of the total revenue will be received upfront for the hardware and half will be realized over time for the software and maintenance).
The bad news is that they’re spending extremely heavily on R&D and selling costs and overhead, so their operating margin has declined substantially — as of last quarter it now costs them about $1.25 in operating costs to bring in 15 cents in gross profit, while in 2019 it cost them $1.04 in operating costs to bring in 12.5 cents. Neither of those numbers is anywhere near profitability, of course, but so far the margins are getting slightly worse as they invest in growth, not better. And my guess would be that the inflationary pressures in the electronics supply chain will probably make that picture a little worse yet in the next year or so, since they’re not going to want to increase their prices dramatically while they’re fighting for market share, though that’s just a guess.
Maybe that’s just because we’re in a “heavy spend” phase as they ramp up, maybe it’s an indication that they aren’t likely to have much pricing power — I don’t know, and it’s arguably not so wise to judge an emerging company based on its operating margins… but that deterioration means you can’t really invest in this based on the numbers, you would have to invest based on the potential future and the story. It’s OK to do that sometimes, a little speculation can be worthwhile, particularly for companies where you have a high degree of confidence and they are building something that could generate strong cash flow for a long time if the network buildout and the economics of EV charging work out as they expect… but, as investors have learned anew over the past year, it’s also important that you don’t invest ALL of your portfolio in speculative stories. Some of it has to be grounded in companies with some financial steadiness and actual profitability.
For me, ChargePoint gets summed up as “no rush.” It’s certainly a worthwhile idea to consider, they have dominant market share in the US for out-of-home charging right now, and it is absolutely possible that EV charging will become a “network effect” business, and that ChargePoint will end up being a leading brand and could earn some pricing power over time… but there’s also a pretty steady beat of falling expectations for CHPT cash flow and earnings of late, which means we probably need either a turn to company cheerleading from a big “raise expectations” quarter or a general return to optimism for the market for CHPT to go soaring.
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I won’t talk you out of buying the shares, that’s your call and CHPT is, at least, at a much lower price than it was a year ago, and they did get some additional financing in the form of convertible preferred shares this Spring that should keep them from having to raise capital for a while, but I’m more inclined to wait it out for now. The big question is whether you believe having the most recognized brand in EV charging is going to be valuable, and whether you think ChargePoint’s spending and their partnerships will let them lead the race for that brand recognition. If so, then it’s just a matter of whether you’re willing to have some faith that the financials for these charging stations will be attractive in the future, buying into the story a long time before it becomes proven or profitable. The analyst consensus right now is that they’ll reach break-even probably in 2026, and that they’re probably pretty close to having enough cash (roughly $550 million) to get them to that point… but that average guess from analysts obscures a wide variety of opinions, the analysts’ “price targets” for the stock over the next year range from about $12 to $46.
And for that to work, for their $550 million in cash to be enough to get them to profitability without selling more shares or borrowing money (which they might be able to do when the cash flow improves), they do eventually have to get some economies of scale — those aren’t present yet, they’re pretty consistently spending close to $2 for every $1 in revenue, but that’s largely because most of their revenue is currently coming from hardware sales. With a recurring business model that relies on software and service revenue that comes in at higher margins in the years after they sell the hardware, they can get to a point where the margins improve meaningfully, at least in theory. All they have to do is prove that the business model works, keep growing their market share without having to invest too heavily in subsidizing the hardware, and hope that out-of-home charging becomes a huge business… and that brand power or network affiliations will mean something to the EV charging customers five and ten years from now.
Who knows, maybe we’ll all be EV owners in the 2050s, and we’ll all have memberships in charging networks and only recharge at our Tesla Supercharger, or at our Ford-branded ChargePoint charger — or maybe we’ll line up at whatever charger offers the cheapest electricity, and none of them will make much money, and the profit will all go to the one who sells the most Slurpees and Subway sandwiches, which is pretty much how the gas stations work now. We’re all guessing, but ChargePoint is, at least, in the lead right now.
Ready to buy into EV charging stations? Think ChargePoint is the most appealing company in the space, or have a different favorite? Let us know with a comment below. Thanks for reading!
P.S. Earlier in the year, Prins was also teasing some investments in copper as a way to play vehicle electrification, and Silvergate Capital (SI) as a play on “fintech” and the impact of blockchain — Silvergate has held up surprisingly well through the cryptocurrency bloodbath and is still close to where it was when she teased it. We haven’t heard from many subscribers of the Distortion Report newsletter from Nomi Prins, so if you’ve tried it out please do pop over to our Reviews page to let us know what you think. Thank you!
My research suggests her latest article on this same subject points to Beam
She might like that one as well, it’s definitely a “big picture” pitch, but the details in this particular tease specifically point at CHPT.
CHPT is an open recommendation in her DR service. So I suspect Travis’s sleuthing is correct.
Smr could do well if it starts making EV CHARGE UNITS
Isn’t that a nuclear power plant design company?
Yes small nuclear modular reactors which just got federal approval. Ideal for EV CHARGE STATIONS
Nuscale Power
Yes. Micro reactors are coming along nicely and could provide solutions to many power supply issues in the future
I had a client who a patent on a nuclear powered train engine. That was 20 years ago. I thought it was a crazy idea back then.
Funny
As Travis was trying to relate to you, NuScale is Not developing charging stations! Their work is small scale nuclear reactors! Like they have on Aircraft Carriers!
As I have posted previously: I simply do not see any EV Charging stocks with a viable plan to make a profit.
Doesn’t it really depend on “at home “charging units? We can’t all have gas pumps at home, but a battery charger? Seems like whoever sells the ” at home” version would be a small winner. Thoughts Travis?
So far, most of the meaningful players in charging stations also sell home chargers… as do several other companies, and some EV carmakers also sell their own home chargers. That market seems pretty commoditized to me, partly because the speed and efficiency aren’t as critical at home.
It will be interesting to see how long it takes to perfect the ultra-distance battery. Public charging stations may become obsolete at that point. Kinda like the highway “emergency call box” stations from the pre-cell phone era.
It will be interesting to see how fast things change — usually these widely-predicted transitions are a lot slower and more fraught than originally expected. Most cars will still be running on gasoline in 20 years… but that part of the business will be in pretty steady decline, probably, so how much are energy companies going to be willing to invest in it to keep that running smoothly and maintain quality service at reasonable prices? Eventually they give up, all else being equal, because companies are reluctant to sink any additional capital into declining businesses… and that speeds the transition because the capital surges to the new-and-growing and leaves the old-and-declining. But this is also the heart of the economy, particularly on the trucking side with diesel fuel, and maybe the government gets more involved to make sure that doesn’t collapse entirely along the way, and maybe that leads to rapid adoption of diesel passenger cars if the transition to batteries stumbles, making pollution worse.
There are so many variables that any predictions are largely useless, I’m afraid. We can be pretty sure that there will be more EVs, because car companies are finally going to build them at scale now that customers have gotten interested in buying, but what the side effects will be, and how long they will take to emerge, that’s the kind of thing we need Chaos Theory to predict.
Solid state, likely will be the game changer. I love tesla, but Elon gets fixated on what he thinks is the right way (twitter, level 5 autopilot). If he put all that energy into solid state… Yeah trucking, no way they wanna keep paying diesel prices. Perhaps they do more trains then mid size trucks, til they can figure out batteries at that size.
Who knows, ENJOY the weekend everyone!
That’s the big issue of course. All this hype about EV’s yet who wants to only travel a distance of a few miles and have to recharge again and again and then spend ten to fifteen thousand dollars to replace the battery sooner than later. Who ever comes up with the real “million mile battery ” that’s when things will get moving. Don’t see it now or in the next couple of years at least
a FEW miles. what 2 or 3 hundred is that a few?
Or model S at 405 miles.
A few sounds like your suggesting less than a hundred.
Specify.
I like ChargePoint, but I think there will be a delayed negative impact on the bottom line of companies across the board from short-term interest rate increases. I think the negative impact is only starting to show up, and stock markets will drift downward until the rate increases stop. So I ‘ll wait until the interest rate increases stop, then revisit ChargePoint. And at that time, I will definitely begin investing again–using Travis’s quote: “…in companies with some financial steadiness and actual profitability.” Just my opinion; one out of 260M U.S. adults.
Thanks, Travis. As always, your omniscience amazes me.
Any thoughts on Wallbox (WBX)? They are being hyped as a big player in charging stations.
My son has been working for Tesla in Reno for over 4 years and the most interesting thing out there is that most of the casinos have been installing and adding Tesla chargers providing FREE electricity to its gambling customers with electric vehicles. This is a lot more attractive than a free meal, but they still get those too along with free alcoholic drinks. It’s a captive audience that will make the casinos a lot more money as the casinos never lose. The money in chargers is the revenue generated by the advertising on the screens that is watched by the bored people waiting for their batteries to charge sometimes up to an hour or more. This is where the money and profits will be made in electric charging stations. I predict that stores that offer free charging stations to customer that spend money in their stores will gain a lot more business, at least at first.